Sharp foreign interest in government securities

• Foreigners double holdings in rupee treasuries last week 

Sri Lanka last week saw a sharp increase in foreign interest in government securities, accelerating the trend set off since the officials sealed a preliminary deal with the International Monetary Fund (IMF) for a bailout package earlier this month. 

According to the data available through the week ended on September 21, foreigners added Rs.7,845 million worth of rupee bills and bonds into their holdings, nearly doubling what they held at the end of September 14.
Last week marked the fourth successive week since foreigners began adding rupee securities into their portfolios after some irregular ins and outs from the rupee denominated bills and bonds in the recent past. 

The announcement of a staff-level agreement with the IMF on September 1 accelerated the pace at which foreigners started buying into rupee treasuries. 
For instance, foreigners increased their holdings by 23.18 percent in the week ended on September 7 and by 60.34 percent in the week ended on September 14 before last week’s 99 percent surge.

Last week also marked the fastest pace at which foreigners bought rupee treasuries in many years after they started slashing their exposure to the country since January 2015 when they held US$ 3.5 billion worth of the rupee bills and bonds which had a rupee equivalent of a mammoth Rs.453 billion.
Even with last week’s buying, foreigners held only a small fraction or less than 3.5 percent of what they held at its peak in 2015 January as such holdings amounted only to Rs. 15.77 billion by September 21 in rupee terms. 

Although they have continued to add treasuries now for the fourth consecutive week, it is yet to be seen if the trend will continue as the US treasuries yields, which are considered the world’s safest assets, are rising sharply as its central bank is tightening the monetary policy at the fastest pace since 1980s to combat four-decade high inflation.